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Civil Society Calls on World Bank to Reform its Energy Lending

Matthew Berger

WASHINGTON, Apr 26 2010 (IPS) - Against the backdrop of the World Bank and International Monetary Fund’s spring meetings this weekend, numerous groups have chimed in on the need for and direction of a new World Bank energy strategy.

The bank’s review of this strategy, according to which it makes decisions on loans to energy projects in developing countries, is ongoing and is due to be finalised early next year. For now, though, it remains under fire.

Earlier this month, a controversial loan package for a coal-fired power plant to be built by utility giant Eskom in South Africa was approved by the bank’s board of executive directors – with Italy, the Netherlands, Norway, Britain and the United States all notably abstaining from the vote.

The countries – and civil society organisations opposed to the coal plant – noted a range of objections, but chief among them were the emissions from the burning of coal, the apparent lack of impact on increasing energy access in southern Africa, the air and water pollution to be caused in the local area, and fears the loan repayment would weaken the rand.

On the other hand, the loan would include small – though relatively large by renewable standards – funds for renewable energy projects in the South Africa. Some analysts also contended it would increase ties between the country and the bank, potentially giving the bank leverage it could later use to move developing economies toward clean energy solutions in the future.

The issue of how and when the bank should use its power to move developing countries squarely on the clean energy path, then, is far from straightforward. But the Eskom vote made one thing clear – a reexamination of the bank’s energy lending in the new, climate change-impacted world is overdue.

The new energy strategy will try to bridge the dangerous gap between increasing energy access and not exacerbating the effects of climate change. As such, energy likely represents one of the most contentious areas of the bank’s lending policy.

It also represents an opportunity for the bank to be a leader in the emerging clean energy economy, say some civil society groups.

This weekend’s spring meetings came in the midst of the first comment period for the bank’s energy strategy review, which stretches from January to May and during which the institution engages in consultations with a variety of groups. Amid the events here this weekend were several on this energy strategy.

Friday, the World Resources Institute hosted a discussion at bank headquarters, and Saturday, the Bank Information Centre, an NGO that focused on influencing international financial institutions, presented its model for how the World Bank’s eventual energy policy should look.

Jake Schmidt of the Natural Resources Defence Council participated in the WRI event. His main message was that “the World Bank needs to be a full part of the solution and not part of the problem and part of the solution at the same time.” Investing in Eskom, he says, undermined the clean energy investments the bank has also made.

The goals of ending poverty and responding to climate change should not be trade-offs, but “solving these issues – which can be trade-offs if you don’t do them right – requires the bank to be innovative,” Schmidt told IPS. He recommends a broader examination of the options available and deeper consultations with the countries receiving energy-related funds.

“The bank needs to ask countries why they need this energy, is it really access for the poor – I think in the case of Eskom, it clearly wasn’t – and then really look at the energy resources in a holistic way it doesn’t usually do,” including energy efficiency and renewables. Only after those options have been examined should it have a conversation on how to meet the gap between the price of renewables and the price of fossil fuels, he said.

“The bank doesn’t do a good enough job looking at the full suite of energy options before making a decision,” he added.

Yong Chen, author of the Bank Information Centre’s report and a sustainable energy expert there, also sees room to reconcile poverty reduction and a transition to clean energy. “Trade-off is the bank’s word,” he told IPS. “We don’t think there is a trade-off.”

His report makes several specific recommendations to achieve its broad goals of increasing energy access from reliable and sustainable sources and transitioning toward zero- or near zero-carbon development. Among them, it would increase financing for both renewable energy systems and energy efficiency by 40 percent annually starting from fiscal year 2011, phase out fossil fuel lending to middle-income countries by 2012 and all countries by 2015, and provide “clean, reliable and sustainable energy services” to 700 million of the world’s poor by 2021.

Prior to this weekend’s meetings, another spate of reports and recommendations were released in the wake of the Eskom controversy.

An Apr. 19 report from the London-based Bretton Woods Project, the Campagna per la riforma della Banca Mondiale and the German environmental group Urgewald criticised the contradictions it found between the World Bank’s energy-related lending and its commitment to combating the impact of climate change on developing country populations.

The authors found fossil fuel lending still plays a “dominant role” in the bank energy portfolio, even with recent expansions of renewable and energy efficiency lending. It also pointed to the way in which projects like coal-fired plants are “locking developing countries into coal-based energy for decades to come” and are neglecting the bank’s core mandate of increasing energy access for those without it.

In a report released a week earlier by the Bretton Woods Project, Christian Aid, Greenpeace and other groups, the authors recommended greater balance in the bank’s energy portfolio “between centralised, decentralised, stand-alone and commodity-oriented energy delivery systems,” a verifiable target to phase out fossil fuel lending to all middle-income countries by 2015 and to all countries by 2020, and internalising low-carbon approaches to supplying energy through “structural, staffing and operational changes.”

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